Vallourec results, in line with Market expectation

All,

Vallourec’s Q3 results were in line with market expectation and our assumptions were in line for volume and revenue but the expected €20m per quarter of cost savings from announced restructurings either did not materialise or was absorbed by other costs. We are still trying to ascertain why and where our cost line assumptions were wrong.

We were unable to ask any questions on the call last night (we might have to take to dialling the French line in future!) but will follow up with management today. Company has done better with its working capital and is making small progress towards deleveraging.

But, the efforts the Company are making won’t make the difference. This is still an equity growth story. Investors in Vallourec have to believe in the uptick in demand in Brazil and Middle East for tubular tubes and the step change in EBITDA that will generate. The outlook given by the Company definitely points to improvement in Middle East and Brazilian demand - away from their mining - more than offsetting the weakness in North America.

We were cautious in taking a position in August in the low 70’s, mainly due to macro conditions and the potential for bonds to be layered in any refinancing of the bank facilities. We remain positive on the direction of improvement for Vallourec, but the macro/layering concerns are still forefront of our view. We will examine the potential for a long position at current mid 60’s level.

Any questions, do not hesitate to call.

Tomas